In the world of Federal HR, we often talk about “modernization” as if it’s a destination we’re all driving toward with the same map. But a recent memo from OPM, titled “Modernizing HR Services by Establishing the OPM HR Shared Service Center,” suggests that OPM isn’t just trying to provide the map—they’re trying to own the gas station, the car, and the police force patrolling the highway.
At first glance, the memo hits all the right notes: eliminating bureaucratic duplication, leveraging “Federal HR 2.0,” and creating efficiencies. But for those in the trenches of agency leadership, this looks less like a modernization effort and more like a massive consolidation of power that threatens the health of the federal HR ecosystem.
Here is why the OPM HR Shared Service Center (SSC) model, as currently proposed, is a step backward for federal innovation and a direct assault on the principles of fair competition.
The Three-Headed Dragon: Policy, Service, and Oversight
The most glaring issue is the fundamental organizational conflict of interest (OCI) baked into OPM’s DNA.
In a healthy regulatory environment, there is a “separation of church and state.” One body writes the rules (Policy), another follows them (Service Delivery), and a third ensures they are being followed correctly (Oversight).
Under this new memo, OPM is growing the three-headed dragon its services business created:
1. The Policymaker: They write the regulations on hiring, classification, and benefits and other HR services.
2. The Service Provider: They sell the “operational HR services” (recruitment, classification, etc.) to agencies through the SSC.
3. The Overseer: They audit and provide oversight of those same HR services to ensure compliance with the very policies they wrote.
When OPM’s oversight division comes knocking on the door of an agency to audit their hiring practices, and those practices were executed by OPM’s own SSC, do we really expect a rigorous, unbiased review? It’s the proverbial “fox guarding the henhouse.” This lack of independence erodes the integrity of the Merit System Principles. If OPM fails to follow its own complex rules while performing services for a fee, who holds them accountable?
Killing Innovation: The Interagency Agreement Loophole
The memo emphasizes that OPM will provide these services via Interagency Agreements (IAAs). On the surface, this sounds like “government helping government.” In reality, it is an anti-competitive loophole that stifles innovation, particularly in the area of HR automation.
When a private-sector HR technology or services company wants to work with a federal agency, they must endure the grueling, multi-month (or multi-year) gauntlet of the Federal Acquisition Regulation (FAR). They must prove technical excellence, past performance, and price reasonableness.
Not so for OPM – they can bypass competition entirely. By using IAAs, OPM can sell its services to agencies with a fraction of the paperwork and zero competition. This creates a absurdly uneven playing field.
While OPM is building “modern HRIT tools” like USA Staffing and USA Performance, the private sector is developing AI-driven, highly agile HR solutions that are years ahead of the government’s legacy tech stack. But because OPM can sell via a “handshake” agreement between agencies, the private sector is effectively locked out of the market. We are choosing “government-built” over “best-in-class,” and the taxpayer is the one who loses. Companies that could offer modern tools to the government often choose not to compete because they know OPM’s in-house tools are too easy for agencies to buy. It costs money to compete for government contracts, and wasting money playing with a stacked deck is not worth it.
The “Boutique” Trap: Why Small-Scale Shared Services Fail
The OPM memo argues that their SSC will save money by allowing agencies to “opt for the full, comprehensive package or select individual service offerings.”
This is the “boutique” approach to shared services, and historically, it has been a recipe for high costs. Real savings in federal HR don’t come from creating another small-scale service provider that agencies can “voluntarily” join. They come from large-scale consolidation.
Having hundreds of service providers across the government, each with their own overhead, their own leadership, and their own slightly different version of a “core” system, is the driver of the high cost of government HR services.
The memo notes that HR servicing costs range from “several hundred dollars to over ten thousand dollars across agencies.” This disparity exists because we lack a single, unified enterprise backbone. By adding yet another provider (the OPM SSC) to an already crowded market of Treasury’s ARC, USDA’s NFC, and the myriad agency HR offices, OPM is contributing to the very fragmentation it claims to be solving.
True modernization requires a “single source of truth”—one core HCM platform for the entire federal government and a much smaller number of service providers, not a menu of a la carte services provided by a policy agency trying to balance its books.
The Revolving Fund Conflict
Let’s also talk about the “Revolving Fund.” OPM’s memo explicitly mentions using its revolving fund authority (5 U.S.C. 1304(e)) to support these operations.
When an agency’s budget is dependent on the fees it collects from other agencies, its primary incentive shifts from “Policy Excellence” to “Customer Retention.” OPM should be focused on making HR rules simpler and more efficient for everyone. But if OPM makes the rules too simple, they might lose the need for the complex, “fee-for-service” advisory support they are now selling.
There is a perverse incentive for OPM to maintain a complex regulatory environment because it creates a market for their own consulting and operational services.
A Better Path Forward
If we want a modern “Federal HR 2.0,” we need to rethink the OPM model:
1. Divest Operations: OPM should be a pure policy and oversight body. It should not be in the business of selling HR services or software.
2. Level the Playing Field: If OPM wants to provide HR software, it should have to compete against private-sector vendors on a level playing field, with agencies having the freedom to choose the best technology regardless of whether it comes from a “government cloud” or a private one. There is no reason for OPM to be in the software development business.
3. Mandatory, Large-Scale Consolidation: Instead of “voluntary” boutique centers, the government should move toward a single, unified HR payroll and records system, separating the data from the policy, with services provided by a much smaller number of HR service providers. Rather than hundreds of HR offices across government, a much smaller number of large-scale providers could operate far more efficiently at dramatically reduced cost. When the Defense Logistics Agency proposed a real consolidation of HR services, Pentagon officials supported it as a means of seeing if consolidation could actually work. Studies of the DLA HR transformation have shown it was completely successful, reduced costs, and dramatically improved the quality of services. The proposed transformation was not universally accepted in DLA. In fact, many affected managers, field Commanders and Senior Executives were vehemently opposed. One SES referred to it as “the most brutal proposal I’ve ever seen.” Another said he would rather have bad service he controlled than good service someone else controlled. One General said it was doomed to failure and would generate no savings, even if it could be implemented, which he doubted. They were wrong. Not only did the consolidation work, it saved money and provided more resources for the consolidated offices to get their work done. Many of the savings came from elimination of redundant management structures. Rather than having seven HR offices, each with an HR Director, staff directors, and support teams for each, there were two HR offices. Rather than having seven sets of HR tools, we had one. Rather than having seven sets of operating procedures, we had one. DLA is not the only example of effective HR consolidation. Other agencies have had similar successes. That kind of consolidation and cost reduction is not radical. It is not risky, and it is not new and different. It is a tried and proven approach to delivering services. In fact, a consolidated Management Department could offer even larger efficiencies across all administrative services.
The OPM memo is a play for relevance in an era where the agency has struggled to define its identity. But by trying to be the player, the coach, and the referee all at once, OPM risks damaging the very merit system it was created to protect.
Modernization shouldn’t mean more government-run bureaucracy and continued government competition with the private sector. It should mean a leaner, more transparent, and more competitive federal workforce. Unfortunately, this memo fails to move us in that direction.
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